Will the petrol tax reduce levels of population

What is Petrol?

Petrol is a liquid mixture derived from crude oil. It is chiefly used as a fuel inside the internal burning of engines. Furthermore, it is besides used as a dissolver, chiefly known for its ability to thin pigments. It consists largely of aliphatic hydrocarbons obtained by the fractional distillment of crude oil, enhanced with iso-octane or the aromatic hydrocarbons methylbenzene and benzine to increase its octane evaluation. Small measures of assorted additives are common, for intents such as tuning engine public presentation or cut downing harmful exhaust emanations.

What is utile?

Gasoline are so utile because it have been use in many facet, such as in transit, the vehicle still necessitate the gasoline to run the engine. Not merely transit, some mill still necessitate to utilize gasoline to run the machinery. Even Tar pull on the surface of the route or main road, it besides derived from crude oil. It is the concluding extraction procedure from crude oil. Plastic that we widest usage in family material, besides come from crude oil.

Who use?

There are many industries depend on gasoline to last. Example, there are transit, Airlines, Manufacturing mill that still use gasoline, Machinery mill that usage gasoline, and the authorities besides use gasoline ( the concluding extraction from crude oil ) in route Infrastructure fix ( Tar at Road ) every bit good.

What is Price of Elasticity Demand?

PED is step the proportionate alteration in quantity demand of the good due to a proportionate alteration in the monetary value of the good itself, presuming other factors are changeless. Formula for PED is

= Percentage alteration in quantity demand of the good Angstrom

Percentage alteration in monetary value of the good Angstrom

Why Price Elasticity Demand for gasoline is inelastic?

What is inelastic? It average proportion alteration of monetary value of the good lead less proportion alteration of measure demand of the good, assumed other factors are changeless. Definition in symbolic for PED Inelastic = % a?† Price of good & A ; gt ; % a?† measure demand of good. Degree of Price Elasticity of demand is & A ; lt ; 1. Type of monetary value snap of demand for gasoline is inelastic because it is the indispensable good. Why indispensable good? Petrol has been use widely in different industry, such as transit, fabrication, machinating, and so on. Without the gasoline, the supply of the goods from mill to the client or provider may detain or acquire affected. Not merely supply but other like circuits industry chiefly depends on transit to convey tourer from one topographic point to other topographic point. Even the monetary value increasing, but the measure demand would non impact so much.

Petrol Price from twelvemonth 2002 to 2006 in Malaya

Date Price/liter Oil price/barrel ( USD )

05/01/2002 – RM 1.32 ( +0.02 ) $ 30.86 ( +19.2 % )

03/01/2003 – RM 1.35 ( +0.02 ) $ 31.54 ( +28.6 % )

05/01/2004 – RM 1.37 ( +0.02 ) $ 40.28 ( +27.7 % )

05/05/2005 – RM 1.52 ( +0.10 ) $ 56.26 ( +5.9 % )

02/28/2006 – RM 1.92 ( +0.30 ) $ 61.64 ( +5.0 % )

Table above show that monetary value of gasoline in Malaya from twelvemonth 2002 to twelvemonth 2006.The gasoline monetary value have been rise from RM1.32 ( Year 2002 ) to RM1.92 ( Year 2006 ) . It shows that every twelvemonth are increasing the monetary value of gasoline.

( alchemistar, 2010 )

Petrol ingestion demand from twelvemonth 2002 to 2006 in Malaya

Year

Petrol Consumption ( Barrel Per Day )

Percentage alterations Year over Year

2002

462,750

-2.60 %

2003

479,860

3.70 %

2004

508,040

5.87 %

2005

521,850

2.72 %

2006

520,000

-0.35 %

Data tabular array above are retrieved from Energy Information Administration by show that demand of ingestion gasoline in Malaya from twelvemonth 2002 to 2006.

( Malaysia Petrol Consumption by Year, 2009 )

Prove that Petrol is inelastic in Price snap of demand ( PED )

In this subdivision, I will utilize instance one to turn out gasoline is inelasticity.

Quantity Demand gasoline in Year 2006 = 520,000 barrel

Assumed that 1 barrel equal to 159 litre

521,850 barrel equal to 82,967,490 litre

520,000 barrel equal to 82,673,364 litre

Unit of measurement are converted by hypertext transfer protocol: //www.convertworld.com/en/volume/

Formula to mensurate degree Price Elasticity of Demand

Formula for PED is

= Percentage alteration in quantity demand of the good Angstrom

Percentage alteration in monetary value of the good Angstrom

Quantity Demand gasoline in Year 2005 = 82,967,490 litre

Quantity Demand gasoline in Year 2006 = 82,673,364 litre

Percentages change in measure demand of gasoline

= ( ( 82,673,364- 82,967,490 ) / 82,967,490 litre ) x 100 %

= ( ( -294,126 ) / 82,967,490 ) x 100 %

= – 0.0035 ten 100 %

= – 0.355 %

Petrol monetary value in Year 2005 = RM 1.52

Petrol monetary value in Year 2006= RM 1.92

Percentages Change in monetary value of gasoline

= ( ( RM 1.92 – RM1.52 ) / rm1.52 ) x 100 %

= ( RM 0.40 ) / RM 1.52 ) x 100 %

= ( RM 0.03 ) x 100

= 3 %

Formula for PED is

= Percentage alteration in quantity demand of the good Angstrom

Percentage alteration in monetary value of the good Angstrom

= -0.3555

3

= – 0.1185

Ignore the negative mark, it is because negative mark show that inverse relationship between demand measure of gasoline and monetary value of gasoline.

So, PED = 0.1185

Answer for PED = 0.1185, is less than one. Harmonizing economic system survey, when PED & A ; lt ; 1, so the type for monetary value of snap is inelastic demand. Below is the graph for inelastic demand.

Price Petrol per litre ( RM )

1.92 –

Demand

1.52 –

A B Quantity demand ( litre )

A = 82,673,364 litre

B = 82,967,490 litre

Tax consequence

Tax can be category into two parts, one is the direct revenue enhancement, and another is indirect revenue enhancement. Example of direct revenue enhancement, income revenue enhancement. Indirect revenue enhancement is value added revenue enhancement, excise Tax, and import responsibilities. It is indirect revenue enhancement which is non revenue enhancement on the consumer but on manufacturer. When we say revenue enhancement imposed on gasoline to cut down the degree of pollution, it is traveling to enforce the revenue enhancement on manufacturer. Below is to explicate that if revenue enhancement imposed on manufacturer, the supply curve will be shift from the right to left side, from ( S BT ) to ( SAT ) .They may bring forth lesser supply for gasoline to be minimum charge revenue enhancement sum on it.

Price Petrol per litre ( RM )

Supply curve after revenue enhancement ( SAT )

Supply curve before revenue enhancement ( SBT )

Demand

A B Quantity Demand ( litre )

A = 82,673,364 litre

B = 82,967,490 litre

Nature of gasoline is indispensable goods, therefore it will be inelastic in monetary value snap demand step. Since, gasoline is inelastic in grade of monetary value snap demand, based on theory manufacturer may able switch the revenue enhancement sum to the consumer itself. The consumer may bear the revenue enhancement sum indirectly. It mean that many consumer are did non cognize they really pay the revenue enhancement sum imposed by the authorities to manufacturer which the manufacturer shift the sum of revenue enhancement imposed to the consumer purchase monetary value. As we know the gasoline is elastic in monetary value snap of supply, because gasoline is lasting goods non like agribusiness good are perishable which can non maintain as stock for a long period.

Long term

What will go on in the long term if petrol monetary value addition, consumer at first will travel to happen other alternate to replace the gasoline use on the auto. They may utilize public conveyance or auto pool with other people have the convince manner to the finish at early phase. But, we need to understand if the state without the complete efficiency on public conveyance system, illustration like coverage MRT to the whole metropolis Centre, the citizen still prefers drive their ain auto to work or the finish that them want to travel because it is non so convenience. Hence, it still will non convey so much consequence on the measure of demand for the crude oil. Unless, we can happen any permutation to replace the gasoline with other goods. It mean any new energy beginning that can replace gasoline, but so far non any suited goods that can replace gasoline in present clip. Although, we have a engineering betterment on auto, the intercrossed auto. But, the loanblend auto still utilize gasoline to run, because it operates based on battery or gasoline every bit good. Hybrid Car is more expensive in monetary value on the current market which non many citizen can afford to buy it. In other facet like plastic, we still need the gasoline in consequence of green goods the plastic which it have been widest usage in the house clasp and other industries as good. We can non happen any replacement of input stuff for replace the gasoline to bring forth the plastic. Harmonizing to economic system survey, when there non any permutation, so the good can group into inelastic. So, we can pull a decision, since the gasoline is inelastic, merely little proportion of the measure of demand affected when revenue enhancement imposed on gasoline and the monetary value of gasoline addition, we can state it would non assist so much to cut down the degree of pollution in the state. Unless some factor, it may assist to alter the consequence of this implement ( imposed revenue enhancement on gasoline cut down the pollution degree ) , like holding really wholly efficient public conveyance illustration in Singapore, MRT are cover about every country in Singapore. When gasoline monetary value addition, the citizen will prefer to utilize MRT than driving the auto by themselves, because it is more convenience and more cheaper cost compared to driving.

Will Tax on gasoline aid to cut down the degree of pollution?

Previous Pages have proven that gasoline is indispensable good, so it is inelastic in monetary value snap of demand. So when we say petrol demand is inelastic, that mean little proportion of measure demand get affected ( may go forth to utilize gasoline ) when the revenue enhancement imposed on the gasoline lead the monetary value of gasoline addition. So, when merely little proportion measure demand alteration from usage gasoline to non utilize gasoline. Level pollution may diminish a small spot on the degree. But, it is non large trade because the chief intent imposed revenue enhancement on gasoline to take the monetary value gasoline addition and been assumed that large proportion of measure demand will go forth from utilizing the gasoline to cut down the degree of pollution. But, what we can saw the consequence from the informations attracted from Malaysia Petrol Consumption, the monetary value are increasing from twelvemonth by twelvemonth, but the ingestion still increase from twelvemonth by twelvemonth. Even we can see the informations from gasoline ingestion from twelvemonth 2005 to 2006 is diminishing. But, we can see the per centum diminution in demand measure is merely 0.355 % even the monetary value of gasoline have been increase 3 % from RM1.52 to RM1.92 per litre. So, by and large the revenue enhancement imposed on gasoline would non assist to cut down in degree of pollution in large graduated table.

Decision

In decision, if the revenue enhancement imposed on gasoline, it would non assist to cut down degree of pollution in the state. Unless the state have wholly efficiency public conveyance can take the citizens use the public conveyance more convenience compared than them drive their ain auto.